Tag Archives: mg siegler

Thank you very much for taking the time to explain your stance on why I won’t soon be able to subscribe to HBO GO without first becoming a cable customer. To paraphrase your argument, you indicate 3 primary motivations for keeping your service as an add-on and not making a direct consumer offering. Those motivations are:

You don’t have a direct customer business today and would have to staff up, primarily for billing and support to be able to make an offering;

You don’t believe you’d be better off (financially) trying to go after individuals directly; and

You make too much in guaranteed payments from your existing customer base (the cable MSOs) to risk pissing them off.

You’re stance, while rational and understandable is also wrong. Taking each point in turn:

You do have a direct customer relationship today.

You already maintain an active user database on your website, complete with authenticated email registration, and you offer technical support to your users on the same site. So, the issue is not that you LACK consumer touch points, it is that you believe them to be insufficient. I think you’re better off than you realize.

Apple has proven that, with a good enough product, you don’t need free customer support. AppleCare subscriptions or one-time incident fees are required for support for streaming services from Apple, and I’d be willing to bear the same lack of support for you. In fact, NOT offering support may help your cause (more on that later).

Further, online payment is an opportunity to partner with players such as Google, Square, Amazon, PayPal and others in what is amounting to one of the most brutal fights in our digital world. For the right deal, any one of them would likely be willing to help you get transactions working. Plus, you have DRM covered as part of the streaming protocol and with very little effort, you can do what Spotify does, allowing only 1 stream to run at a time on the same authenticated account. You already have most of what you need.

The Direct-to-Consumer Opportunity is Big, and not Mutually Exclusive with the MSO offering.

In your letter to MG and in other public statements/posts, you’ve pointed to the 100M cable subscribers (70% of which don’t subscribe to HBO today) compared to only 3M broadband customers as a reason to stick ONLY with your current model. BUT, the broadband subscribers represent a mere fraction of the potential market for HBO GO, and it is a group of users that has been marketed to efficiently for decades.

The real potential customer base includes tablets and smart phones, not just broadband subscribers. With over 25M tablet devices and roughly 400M iPhones/Android phones now on the market, after making some assumptions about geographies, the potential domestic user base is likely to be in the range of 200M subscribers, not 3! That’s twice as large as the cable base, and they’re worth more money to you.

Assuming you get 50% of a subscriber’s monthly payment from cable; that means your 28M subs net you approximately $196M per month in the US (again, let’s leave out your international revenues, which are both substantial and need not be impacted at the outset). If you need to make that whole number with digital subscribers (at the $20 monthly rate suggested in MG’s letter), you need only roughly 10M subscribers to make even money. You can have 1/3 the number of subs for the same receipts! Netflix, even after all of this summer’s hoopla is estimated to have around 20M subscribers and they don’t have the original programming that is the biggest draw for HBO. You can’t do half as well as Netflix? Plus, the cable MSOs have had decades to attract HBO subscribers for you and still haven’t surpassed the 30% mark. What’s going to change? Direct is a much bigger opportunity than you’re suggesting

The MSOs aren’t going anywhere.

But it would be fair to agree with the above and still not be willing to risk guaranteed revenue if indeed the MSO revenue would be put substantially at risk. It wouldn’t be.

There are at least 3 arguments worth highlighting here:

Making an offering won’t take your MSO revenue to zero. The cable companies won’t drop you (you’re still worth too much money to them), so they’ll simply renegotiate, but again, not substantially. It is fair to assume that not only will a material percentage of people continue to subscribe through their MSO, but a naked offering from HBO can help highlight a cable offering as premium. The vast majority of Americans have access to local broadcast channels free over-the-air, yet choose to subscribe to cable. Making a similar argument for the benefit of HBO isn’t much of a stretch. Cable still offers the easiest, most reliable means of accessing ANY programming. Any IP-delivered video service is likely to stop at least once during playback to buffer, and require you to switch inputs if you want to watch the game. Cable doesn’t. Plus, there are other conveniences including direct-billing, discounts on bundled services, DVR functionality, AND robust customer service that will bolster the MSO offering. Cable shouldn’t be impacted materially.

Broadband subscriptions benefit the cable operators. More and better streaming video offerings help drive broadband subscription and that is a good thing for the cable companies. Access, unlike cable is a high-margin business with little incremental cost for adding a new userPlus, any new broadband subscriber offers cable a chance to convince users to take or retain core bundled services. Cable knows you aren’t killing their business by offering something of value that requires broadband.

Consumer interest won’t last forever. Finally, you can’t expect consumers to wait for you to deliver what they want. Cord-cutting isn’t the issue, but accessing programming via the device and at the time of a user’s choosing is. Taking a quote from Steve Jobs out of the Walter Isaacson biography, “If you don’t cannibalize yourself, someone else will.” With Amazon, Apple, Google, Netflix, Disney and many others offering direct-to-consumer access to movies and programming, people have to make trade-offs. I’d sooner pay for the series you’re making, but if you won’t let me, I’ll eventually give up. I’m not alone.

To Be Fair.

But, to be fair, I understand your unwillingness to do it TODAY. You’ve got enough money coming in and your building a large enough stockpile of great original programming to license out if you choose to do so. There’s very little urgency.

I don’t blame you for waiting, but you don’t have to. I’ll sign up today. You’ll make more money and grow your audience. I hope you’ll reconsider.

Thank you,

Lee

About Lee Milstein: Trained as a lawyer, but a tech guy at heart, Lee is on a quest to better media through the use of technology. Currently doing business development deals for AOL, Lee previously ran Business and Corporate Development at DivX and once took a class called “Mobile Robotics” that he never heard the end of from his friends. Read more on Lee’s blog.

First and foremost we love your content too! Seriously, you write great stuff, and we generally love all of our fans. This is why we’re writing to you. See, the thing you love us for is the great shows we make like Game of Thrones, Entourage, The Sopranos, etc. And we love making them. Some might say our brand is at its strongest in recent memory, as we put out some of the best shows on television (though we’ll give a little head nod to our friends at AMC for their impressive content selections in recent years – we wish we had grabbed Mad Men, but… oops!).

See the thing is, the way we get to make these shows is, candidly, by spending a lot of money on trying to be the best (btw – can you believe it’s been 20 years since “Simply the Best” was our theme? flashbacks!). Our mutually agreed upon favorite Game of Thrones? North of $5 million – just to make the pilot! And the dude writing it hasn’t even finished the whole series yet! This stuff costs a fortune, and, as you’ve probably seen, they can’t all be winners.

We love that you’d spend $19.99 (or more) to pay for our service, and we wish we could have you as a customer. But let’s talk about that for a second. First of all, we don’t have any direct relationship with our fans right now, so when you need customer service, you call Comcast or DirecTV or Cox, etc. So we’d need to get customer service up and running, and that’s pricey, since, as you know, we’d want our service to be top notch.

Next, we have no method of billing you. And sure, we can just do some PayPal or an easy Website transaction, but then we’d also need a full authentication framework (we trust you, MG, but let’s face it – not everyone on the Internet is quite so honest). Today, we just get paid by the cable/satellite companies, and it’s up to them to deal with everything else.

But let’s get to the crux of the issue. There are about 30-40 million Americans who watch HBO shows legally, and we agree, a lot of them would be happy to pay us directly. If we went, as you put it, “cable-optional,” we’d be breaking our existing, mega-million-dollar contracts with our current partners, and from what we’ve seen, they wouldn’t be too happy about that. Second, we don’t really know how they’d change their billing relationship with you or other consumers. Which is going to put a lot of people into a precarious position of having to decide if they really do want to sign up with us and keep paying their cable bill.

This too wouldn’t be a problem if we had a really strong feeling about our ability to recoup the investment. See, we make about $4 billion a year right now. Yes, that’s right, four, zero, zero, zero, zero, zero, zero, zero, zero, zero dollars. Oh my is that a lot of zeros.

We’d basically be building a product, from scratch, with no distribution whatsoever (remember we’d have to break all our contracts to be able to run a standalone business, which would put a major crimp in our style of marketing and promotions). And even if our current brands were strong enough to build on, do you think our entire customer base would make the shift? We don’t, even the ones who love our shows. We also don’t think this standalone business would actually get us a larger audience than we have today, which means even less people would get to watch our stuff.

So MG, we’d love to have you as our direct customer, but honestly, we can’t afford you. Can we send you a real crown from the set of the show instead?

-your pals at HBO

ps – just in case its not clear, I don’t really work for HBO, nor would I presume they’d write a letter like this one, nor can I be 100% certain of some data points including subscriber base or ARPU. in other words #satire.

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About

Jeremy Toeman is VP Products for CNET. He has over 15 years experience in the convergence of digital media, mobile entertainment, social entertainment, smart TV and consumer technology. Prior ventures and projects include Viggle, Dijit Media, Sling Media, VUDU, Clicker, DivX, Rovi, Mediabolic, Boxee, and many other consumer technology companies. This blog represents nothing but his personal opinion and outlook on things.